Simple Interest & Simple

Definition of TermsLender / Creditor the person or institution thatmakes the funds available to those who need it.Borrower the person or institution that avails ofthe funds from the lender.Interest a certain sum of money that the lendercharges the borrower for the use of the funds.TYPES OF INTEREST: Simple Interest Compound Interest

SimpleInterestThree Factors: Principal Interest Rate Time or Term of theloan / investmentFormula:

I=PrtI = InterestP = Principalr = ratet = term of the loan inyears

Principal is the sum of

money borrowed orinvested. Interest Rate is therate charged by thelender or rate of increaseof the investment. Expressed in decimals Time or Term of the loan the number of yearsthe sum of money wasborrowed or invested.

SimpleInterestThree Factors: Principal Interest Rate Time or Term of theloan / investmentFormula:

I=PrtI = InterestP = Principalr = ratet = term of the loan inyears

How much interest is charged

when P10,000 is borrowed for 2years with an interest rate of3%?Given:P = P10,000r = 0.03I=?t=2Solution:I = (10,000)(0.03)(2)I = P600Answer:The interest charged for the useof P10,000 for 2 years is P600.

MaturityValue orFuture- The sum of theprincipal and theAmountinterestFormula:

F=P+IF=P+Prt

F=P(1+rt)

Lucy borrowed P40,000 from a

lending firm that charges 6% peryear. How much will she pay thelending firm after 5 years?Given:

Actual Timeand Origin dateApproximateMaturity dateTimeActual time is obtainedby counting the actualnumber of days betweenthe two given dates.Approximate time isobtained by countingthe actual number ofdays between the twogiven dates but on theassumption that eachmonth has 30 days.

Answer:No.30313021250of are 250 actual days fromTheredays15, 2008 to December 21,April2008.

Actual Timeand Origin dateApproximateMaturity dateTimeActual time is obtainedby counting the actualnumber of days betweenthe two given dates.Approximate time isobtained by countingthe actual number ofdays between the twogiven dates but on theassumption that eachmonth has 30 days.

Actual Timeand Origin dateApproximateMaturity dateTimeActual time is obtainedby counting the actualnumber of days betweenthe two given dates.Approximate time isobtained by countingthe actual number ofdays between the twogiven dates but on theassumption that eachmonth has 30 days.

HowmuchshouldMr.Buenaobra pay if he borrowedP10,000 on June 25, 2008 and ifthe principal plus interest are tobe paid on November 18, 2008at 15% interest, usinga.Exactinterestfortheapproximate time;b.Ordinary interest for theapproximate time;c.Exact interest for the actualtime;d.Ordinary interest for theF=P(1+rt)actual time?

Actual Timeand Origin dateApproximateMaturity dateTimeActual time is obtainedby counting the actualnumber of days betweenthe two given dates.Approximate time isobtained by countingthe actual number ofdays between the twogiven dates but on theassumption that eachmonth has 30 days.

Pr = P9,120Answer:Samson will get P9,120 out of theP12,000 that he loaned. He will,however pay P12,000 on the maturitydate since the interest was alreadydeducted.

PromissoryNotes

Simple Interest Note

Is a written promiseMay 8, 2008termdrawn by a person oran institution (drawer)30 days after date, I promise to payto another person orABC Lending Corporation the sum of fourinstitution (drawee) tothousand three hundred pesos (P4,300) plus apay a certain amount12% interest per annum.face valueofmoneyatadraweeMary-Anne Raymundospecified time and interest rateinterest rate.maturity date

October 31, 2008

December 30,2008

Ronnie del Rosario

drawer

DiscountingNotesthe procedure of sellingthe notes to individualsor other institutionsbefore its maturity date.STEPS IN DISCOUNTING ASIMPLE INTEREST NOTE:1. Find the maturity valueof the simple interestnote.2. Determine thediscount period ordiscount term. This is thetime from the date thenote is discounted to thematurity date.3. Find the proceedsusing the discount rateand the discount period.

DiscountingNotesthe procedure of sellingthe notes to individualsor other institutionsbefore its maturity date.STEPS IN DISCOUNTING ASIMPLE INTEREST NOTE:1. Find the maturity valueof the simple interestnote.2. Determine thediscount period ordiscount term. This is thetime from the date thenote is discounted to thematurity date.3. Find the proceedsusing the discount rateand the discount period.

Given: P = P15,000monthsr = 0.150.16Pr = ?Solution:Step 1

t = 2d=

2 F = P ( 1 +rt) 1 (0.15) 12

F = 15,000F = P15,375

DiscountingNotesthe procedure of sellingthe notes to individualsor other institutionsbefore its maturity date.STEPS IN DISCOUNTING ASIMPLE INTEREST NOTE:1. Find the maturity valueof the simple interestnote.2. Determine thediscount period ordiscount term. This is thetime from the date thenote is discounted to thematurity date.3. Find the proceedsusing the discount rateand the discount period.

DiscountingNotesthe procedure of sellingthe notes to individualsor other institutionsbefore its maturity date.STEPS IN DISCOUNTING ASIMPLE INTEREST NOTE:1. Find the maturity valueof the simple interestnote.2. Determine thediscount period ordiscount term. This is thetime from the date thenote is discounted to thematurity date.3. Find the proceedsusing the discount rateand the discount period.

DiscountingNotesthe procedure ofselling the notes toindividuals or otherinstitutions before itsmaturity date.STEPS INDISCOUNTING ABANK NOTE:1. Determine thediscount period. Thisis the time from thedate the note isdiscounted to thematurity date.2. Find the proceedsusing the discountrate and the discount

Trake Inc. received a P150,000 bank

discount note for 6 months at 5%simple discount. After 2 months, TrakeInc. decides to sell the note to thebank. How much proceeds will TrakeInc. get from the sale of this note?Given: F = P150,000d = 0.05Pr = ?Solution:Id = F d tId = 150,000

Pr = F I d

Pr = 150,000 2,500

Id = P2,500 0.05P r = P147,500

12

Answer:Trake Inc. will receive P147,500 from thesale of the bank discount note.